Role of the entry mode choices

The international business includes all the commercial activities which take place in order to promote the transfer of goods, services, people, resources, ideas, people and technologies through boundaries. This report includes the international business expansion of the Monash University which is a public research university based in the Melbourne, Australia. The university has decided to make its expansion in the Philippines. The report comprises the role of entry mode choices. It is also accompanied by strategic issues in order to succeed in the international business. Monash University is the largest university in Australia and was established in 1958. The quality of teaching and exceptional facilities makes university to rank in the top 100 universities of the world. The university offers students a memorable university experience. It provides a friendly environment no matter which campus is attended by the students. The university always aims to empower people to make a positive impact on the world.

Monash University has a great sense of purpose, a global outlook, skills, and confidence to make a positive change to the lives of the people around. The university can enter into the Philippines by the following entry modes:

Franchising: The franchising is an international market entry strategy. In this strategy, a semi-independent business owner pays fees and royalties to the franchiser to use the university’s trademark and sell its products and services. The terms and conditions depend on the contract made between franchiser. It comprises operations, management, staff training along with the location approval. The franchising is considered an effective method of foreign market entry. It is an important advantage of the franchising that it capitalizes on an already successful strategy. The franchise has also local knowledge and this method is considered less risky. The university can also save itself from the risk exposures associated with the foreign market (Ravelomanana, Yan, Mahazomanana & Miarisoa, 2015).

There are two different types of franchising relationships. The business format franchising is the most identifiable to an average person. In this agreement, the franchisor offers the entire system for operating the business than just the products and services. On the other side, traditional franchising is larger than the total sales. In the traditional franchise, the focus is given on the system of conducting business than the business format franchising (Meschi, Phan & Wassmer, 2016). The franchising is all about the franchisor’s brand value and the way franchisor supports its franchises. It also comprises the way franchisee meets its obligations to deliver products and services as per the brand’s standards.

The franchising is also a contractual relationship which allows business owners to use franchisor’s brand and the way of conducting business activities. The franchising is an effective mode for the foreign market entry. There are a few potential shortcomings in this method (Kacker, Dant, Emerson & Coughlan, 2016). These shortcomings comprise declined brand quality because of not having control over franchises and the franchisor does not receive a royalty fee and not the whole profit made (Hernández & Nieto, 2015). But this foreign market entry is chosen because it is believed that the rewards compensate for the risks.

Franchising

Wholly owned subsidiary: A wholly owned subsidiary is a process in which an organization takes entry into the foreign market with 100% possession of the foreign entity. The wholly owned subsidiaries can be used in two ways acquisition or Greenfield operations. The acquisition is basically the purchase of the foreign organization to enter into the new market. This way Monash University can purchase an organization in the Philippines in order to enter into the market. Whereas, the Greenfield operation is the creation of a new organization into the foreign market. The organization can effortlessly choose wholly owned subsidiary by maximizing exposure to the foreign market and limiting risk. The acquisition is the best method out of it (Cavusgil, et. al. 2014). The acquisition can be preferred by the Monash University because these are already established brand names along with the customer base. Out of acquisition and Greenfield, entry mode depends on the circumstances, goals, and objectives of the organizations.

The wholly owned subsidiaries incur more risks than the other entry modes. If it is implemented appropriately as per the circumstances than it results in the high rewards. A company can have high control, commitment, presence, and reward if it enters as a wholly owned subsidiary. It enables a company to reach diverse geographic regions, markets, and various industries. Entering in a foreign market with the wholly owned subsidiary is a good prevaricate against the factors like political and legal changes. In the wholly owned subsidiary, the company can own whole shares of the company and there are no minority shareholders. The parent company is not required to reveal its technology in order to conduct operations in the foreign country (Birkinshaw, 2016). It can have its own competitive advantage and look after the activities alone.

Partnering: Monash University can get a partner in a foreign country to conduct its activities. The university is required to get potential partners to ensure that they are helpful. Good partners help in getting grip on the new market easily. It also helps in knowing everything about the new market. It should be made sure that the partners never let down the business. It is a formal arrangement in which two or more than two parties cooperate to manage and operate a business (Game & Apfelthaler, 2016). The partners share liabilities and profits equally whereas some partners can also have limited liability. The partnership is divided into the two forms, general partnership, and limited partnership. In the general partnership, the responsibility is to share equally as partnership’s debts and other obligations. On the other side, limited partnership comprises both general and limited partners. The general partners run business and undertake liability for the partnership whereas limited partners serve as investors only. The limited partners do not have control over the company and not exposed to the same liabilities as the general partners (Hutzschenreuter, Kleindienst & Lange, 2016).

It has been considered that limited partnerships are not the best choice for a new business in the market due to the obligatory filings and managerial complications. A general partnership is preferred when there are two or more partners and wants to actively involve. The tax treatment is the major advantage enjoyed in the partnership agreement (Doz, 2017). The partners are not required to pay tax. They have to just pass profit or losses to the individual partners. At the time of tax, the partners are required to file a tax along with reporting its profit or losses to the IRS. If a company decides to form a partnership, it necessitates drafting a partnership agreement along with some details. This agreement addresses the business purpose, authority, and responsibility of each partner (Penrose, 2017).

Wholly owned subsidiary

Out of the options discussed above, franchising is the best method for Monash University to take entry into the Philippines. It is the less risky mode of investment in the foreign country for the University (Ang, Benischke & Doh, 2015). The university does not need to invest its resources in the foreign market. The university can attain fees and royalties from the franchisor in Australia itself. The university is just required to introduce about its operations and degree courses available. The code of conduct will also be presented by the university to the franchisor. The university will be capable of getting expertise and highly motivated employees.

Monash is desired to make difference from everything it does. The university goes beyond good intentions. It can make an impact both locally and universally. Monash University can confront the following strategic issues in order to succeed in the Philippines: 130

Foreign laws and regulations: Monas University can face the issue in gaining an understanding of the local laws and regulations governing the target market. The legal requirements are the essential function for the successful international business. The university is required to consider the legal costs in the Philippines linked with entering new markets. The employment requirements also differ by country. For instance, fourteen weeks of maternity leave is offered to the employees. Other than this, there are unwritten cultural guidelines which are required to engage in the international business (Bartlett, 2017). It creates challenges to enter the emerging markets. Monash University is necessitated to read the whole universities laws of the Phillipens before conducting its operations in the country. The university is even required to add or reduce the number of the courses as per the education pattern of the country.

International accounting: The legal areas are required to consider when it comes to conducting business in a foreign country. The tax compliances are the most crucial part out of it. The accounting can present a challenge to the Monash University as it will be accountable for the corporation tax abroad. The elements such as various tax systems, rates, and amenability requirements can make accounting function considerably challenging for the university. Justifying the risk of several layers of taxation makes good business sense for the university trading in the Philippines (Cravino & Levchenko, 2017). The university is required to focus on tax efficiency with the aim of universal accounting efforts.

Cost calculation and global pricing strategy: Finalising price of the degrees and courses can present challenges to the Monash University while conducting activities in the Philippines. It also undertakes other major considerations. The university should consider costs to remain competitive while ensuring profits. Researching fees of the local universities can offer a benchmark to the Monash University. The university is also required to ensure that it is able to cover its costs and save margins. The fees charged by the university can help to choose its position in the market. The low prices can help the university to penetrate the market. The university can also charge higher prices due to its goodwill in the various countries. The price skimming strategy works here (Cuervo-Cazurra, 2016).

Partnering

Universal payment methods: The distance education has made easier and affordable for the students overseas. It is possible that the payment methods accepted by the Monash University are not accepted in the Philippines. The university can face the issue in accepting payment methods. Ensuring secure processing is supposed to be a central consideration for the Monash University. Accepting payments through companies like Worldpay can be good for the university. There are also some other options like PayPal payments can be used by the company (Miller & Lin, 2015).

Currency rates: Deciding fees and payment methods are major considerations along with the currency rate fluctuation. It is challenging for the university to navigate. It is a dominant part of the strategy to monitor exchange rates. The global economic volatility has a role in forecasting profits specifically when the rates fluctuate at the impulsive levels (Wiedersheim-Paul & Johanson, 2017). Major fluctuations can impact the balance of payments. The university can protect itself against the large fluctuations in currency by paying expenses in the same currency as in the home country. The forward contract can also be settled for mitigating unpredictable currency rates. It can help to protect the admissions in the form of sales by presenting risk in the unstable currency (Cumming & Zahra, 2016).

Communication difficulties and cultural differences: The good communication is part of the global business strategy. Communication across the cultures can be a real challenge for the university. The cultural values can influence the communication at the professional context. On the other side, culture has also a role in the type of courses trending. It is required to research the local universities and number of successful brands who are valuable in the Philippines (Sommerfeldt & Yang, 2017). The culture of the country defines the required education in the country. It can help the university to prepare in advance before conducting its activities.

Political risks: The political risks should be considered for conducting operations successfully in the foreign market. The Philippines offer opportunities to Monash University for conducting operations but it also comprises risk of political uncertainty (Xiaobo, Jing,Wen & Yihong, 2017). There should be risk assessment of the economic and political backgrounds before making an expansion. The issues like unstable policies and corrupt practices can be challenging for the university. The changes in the government also bring change in the regulations and policies. It can result in destructing foreign business and investment (Wehrmeyer, 2017). The university can mitigate political risks by monitoring political developments and planning consequently.  

Conclusion 

Monash University is already an established educational institute in the Australia. It is already having business in the countries other than Australia. The idea of university’s making expansion in Philippines can be successful as it has good reputation worldwide. The decision of making expansion in the Philippines need to consider entry mode choices like franchising, wholly owned subsidiaries and partnering. Out of it university considered franchising as the best option because it considers the minimum risk. The local partner taking franchise will have sufficient experience of the local industry along with the customer base. In return, the university will get royalty fee. Monash can make use of business format franchising and traditional franchising for conducting operations in the Philippines. The university will indulge in the contractual agreement for the franchising.

Monash can confront strategic issues in order to succeed in the Philippines. These issues comprise foreign laws and regulations, international accounting, global pricing strategy, universal payment methods, currency rates, communication difficulties and cultural differences and political risks. But Monash University is capable enough to conduct operations smoothly worldwide. As it is already conducting operations in many countries. The university offers various degree and courses. Along with this, the university is required to add courses prevailing in the host country. So the university can conduct survey on the local universities of the Philippines. It can help Monash to overcome the global pricing strategy and universal payment methods. The university should consider the political risks specifically prevailing in the country before conducting operational activities. Finally it can be concluded that Monash will be operating successfully in Philippines as the students are already known from the university due to its top 100 ranking.

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